In a bid to align the audit process of stock brokers’ technology and systems with the regulatory intent, market regulator the Securities and Exchange Board of India (SEBI) has proposed enabling stock exchanges to monitor and supervise stock brokers’ system audits through an online web portal.
The move follows gaps noticed in the existing decade-old framework for system audits of stock brokers, including poor quality, system audits without physical visits to broker’s premises, audits by non-qualified auditors, and the non-existence of an independent source for verification of audit.
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“It is felt that the close monitoring and supervision of system audit by exchanges is required in order to further strengthen the process of carrying out the audit, the quality of the audit findings and required depth while conducting the audit,” SEBI said in a draft paper, seeking public comments by December 26.
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“It has been decided to carry out a comprehensive review of the audit process to align it with regulatory intent and encompass certain regulatory aspects with regard to technology and systems of stock brokers,” the regulator said.
Both stock exchanges–National Stock Exchange (NSE) & BSE–would be required to develop a web portal to ensure that auditors conduct physical visits to the premises of the stock brokers and to ensure that the audit process takes place through the portal.
The proposed framework will also ensure that only the authorised auditor or partners in the audit firm will carry out the audit through physical visits to the premises of the stock brokers, which will be supervised by exchanges.
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Exchanges could also impose a financial disincentive on stock brokers in cases where there are serious lacunae in the system audit or non-disclosure.
The regulator has also proposed additional responsibilities on auditors to verify technical glitches, remedial steps taken,
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